Capital Share Discussion Threads

[johnrxx99] 27/7/2023 09:37

Do you think that is priced in?

[adamb1978] 27/7/2023 09:33

Hi Rivaldo

Here you go:

hxxps://www.capdrill.com/media/investors/Announcements/CAPD-Allied-ownership-RNS-v2_Website.pdf

[rivaldo] 27/7/2023 08:46

Hi Adam, no indications yet AFAICS of the pre/post-money m/cap.

I had CAPD's valuation of the Allied Gold stake at $7.7m per the last Annual Report (p.101) and thought the holding was nearer 2% of Allied - do you have sources for your $8.3m and 1.55%? TIA.

[adamb1978] 27/7/2023 08:15

Thanks Rivaldo. Do you know what the pre/post-money market cap is expected to be?

Their shareholding was 1.55% so can use that and the $8.3m carrying value of the stake on CAPD's books to calculate the change if anyone has the patience!

[rivaldo] 27/7/2023 07:44

Good news - looks like the Allied Gold IPO is going ahead on or around August 17th (cheers Martin):



They've raised the minimum $250m, and are looking for more to take them nearer the $300m originally mooted.

Difficult to tell what CAPD's upside is without knowing exactly how many Allied shares they own, unless this paragraph helps someone to work it out:

"In connection with the Going Public Event, the Common Shares will be consolidated on a 1:2.2585 basis prior to the issuance of the Resulting Issuer Shares, which are expected to trade in Canadian Dollars reflecting an effective price of approximately C$5.92 per Resulting Issuer Share."

[benjonesinvestments] 25/7/2023 18:43

Hi Adam,

I appreciate you were looking at EBITDA margins to strip out the impact from higher depreciation figures but didn't have those in front of me, so thought op margins were next best I had! I have gross margins of 47% for 2021, 46% for 22 and 45% for both 23 and 24 which strips out D. Weaker services margins offset to some degree by better ARPOR growth which has been good aside from Meyas Sand issue.

Must admit, not straightforward to anticipate ARPOR growth!

I'll also need to look at mining contract - might be one that needs an email to IR :)

[adamb1978] 25/7/2023 17:53

Hi Ben,

Thanks for the reply. The margins which I was referring to were EBITDA rather than EBIT which you refer to, but I broadly agree with your figures. I was looking at EBITDA rather than EBITDA given that the increased capex investment this year and last year will increase the 'D' so I was just trying to eliminate that one variable to start with.

You make a fair point on the services margins and near-term drag from them. If they can get them up to the 20% which you refer to then that'll certainly be a win.

I haven't modelled that contract separately - will have a look in the coming days and come back to you if I have any insight. Simplistically I'd probably just include it at overall gross margins.

Adam

[benjonesinvestments] 25/7/2023 16:33

Hi Adam,

I see operating profit margins of 24% for 2021 and 21% for 2022. I have 18% modelled for 2023 and 2024. Not a huge difference but part of it is the ramp up of the labs business. The labs business is a growing part of overall business (9% of revenue in 2022, expected 14% of revenue in 2023 and possibly 25% by 2025) but the operating margins there are really weak (<5%) as it grows. I expect labs operating margins should reach around 20% by 2025 but until then it'll drag overall margins lower.

I haven't modelled the new mining contract yet so I'd be interested to hear thoughts on the margins there.

[adamb1978] 25/7/2023 11:35

Looking back at my xls files for CAPD after being out last week. Welcome anyone's views on EBITDA margins for CAPD -

Margins were 32% and 31% in 2021 and 2022 however market forecasts have these falling to 29% and 27% in 2023 and 2024 respectively.

Interested in any views on this. Opex increased significantly in H2 2022 however the main driver of that (almost all the increase from H1) was bad debts and provisions, so not sure whether analysts are simply rolling forwards that higher base with those two items in it, or whether there's something else happening.

Makes quite a difference to the outcome at the bottom line, particularly given there will then be increased depreciation charge from the new rigs etc

Thanks

Adam

[stemis] 19/7/2023 16:32

It amuses me when people mention Africa and South America when it comes to political risk. For oil companies the place with the greatest political risk turned out to be the UK !

[hpcg] 19/7/2023 14:52

Africa isn't a place, it's the second largest land mass. I agree it puts off investors but that is their own ignorance of geography. Sudan alone is over 7 times the size of the UK. Political risk is land area agnostic but political decisions in Mali have nothing to do with Tanzania and vice versa.

[troc1958] 19/7/2023 14:23

I was getting concerned, prior to todays results, that the gradual drop in share price over the last month from 102p to 89p was something structural and longer term. The fact that it was mainly due to the "Meyas Sand Gold Project" project in Sudan and not something more serious was consoling. We need to remember that Capital trades predomindantly in Africa and thus the African risk contagion applies. This is already factored into the price. A p/e around 6 shows that this contagion is very marked. Capital have used risk mitigating factors such as focusing on blue chip clients (e.g Barrick, centamin etc) and diversifying its income stream (drilling, labs, mining services). But that doesn't detract from the Africa effect as perceived by the average investor. However one of these days the market will wake up to the fact that Capital is markedly undervalued. I am happy to wait until that day and top up on share price weakness until that day arrives. In the meantime I'll take the "low" dividend and wait for the inevitable rerating.Troc

[adamb1978] 19/7/2023 11:53

Hi hpcg

Yes, small cap funds being withdrawn and funds flowing out from them recently. However I think thats just a consequence of where interest rates are. People see the opportunity to make low/no risk 5%/6% and then think that the premium which you can earn from small-caps isnt worth it on a risk adjusted basis.

I think that we probably only have 50bps, max 75bps, of interest rate rises left over the Aug, Sept and maybe Nov BoE meetings. I think we'll see inflation sub 5% by year end and around say 3% by Easter, so we're not far from peak rates and looking to when they can be cut to help boost the economy.

In the meantime, buying back shares for < NAV as CAPD could do would make a lot of sense.

Adam

[muckshifter] 19/7/2023 11:36

Yes hpcg, I remember very well a bypass contract in Scotland years ago where we tendered what we thought was a competitive price at a time when we were a big road builder. Virtually the day after tenders were opened, our lead estimator had a call from his opposite number in the successful company where it was clear that the caller was panicking about why there was a big discrepancy between his and our price. When the tendered price list was published a while later, the six (iirc) tenderers between our two companies were spread very neatly at almost identical price intervals, apart from us. Which was exceptionally clear evidence that the tender was rigged and the winner simply had us as the people to beat because we weren't part of the "ring".

[hpcg] 19/7/2023 11:17

I reckon there is 1000bps of sterling reduction to come over the following months. All my dollar earners have suffered to a degree this year because of that.

[hpcg] 19/7/2023 11:15

muckshifter - I know what you mean, but having worked in a contract world the only thing worse than winning a competitive auction is winning one where no one else realistically bid. Competition is the reality of contractor life and why natural resource firms in particular are such big users.

[muckshifter] 19/7/2023 10:36

Don't think I'd want Tamesis to write stuff like "won a very competitive tender" in a research report if I ran CAPD. "Very" competitive implies poor margins in a fairly high risk operation where the RNS does not make it clear whether the "up to five years" contract duration gives both parties the ability to terminate the contract, or just the client.

[deanowls] 19/7/2023 09:50

Or continue doing what they are doing and value will out.

[davebowler] 19/7/2023 09:50

TAmesis research -
This morning Capital Ltd released its Q2 2023 trading update for the quarter and six months ending 30 June. Overall the results (comprising operational data and revenue) is in line with our estimates and leaves the company on track to meet its guidance of $320-340m revenue; which will be the 4th yr in a row it has set a record. YoY growth in revenue, ARPOR and average fleet size was 12%, 9% and 11% respectively. The results also show the diversification in this growth – non-drilling revenue is now 36%. This comes from the company’s MSALABS business that now employs 10 Chrysos PhotonAssay™ across Africa & Canada growing to 21 by FY25. The third leg is the company’s mining services business where the company recently won a very competitive tender for Fortescue’s Ivindo iron ore project in Gabon. The company continues to deliver diversified revenue growth both technically and geographically thereby reducing cashflow at risk and ultimately its cost of capital. We maintain our PT of 160p.

[hpcg] 19/7/2023 09:48

I right there with you Adam. With small cap funds closing there is just less and less money going in companies of Capital's size. Worse, there is money being withdrawn. The only way around this for profitable companies that don't require funding is to reduce the share count from their own resources. Or potentially move to an alternative exchange, though I think that probably isn't an option for Capital.

[adamb1978] 19/7/2023 08:59

Agreed Rivaldo. Still looking very cheap. Question is how to change strong operating performance into strong share price performance. CNIC is a good example of how sometimes a board need to take action themselves to get things turned around. Might be that CAPD need to do the same before too long

[rivaldo] 19/7/2023 08:58

Tamesis retain their 160p price target, and note that the current share price is "a good buying opportunity".

In summary:

"On Track to Meet Full Year Guidance

This morning Capital Ltd released its Q2 2023 trading update for the quarter and six months ending 30 June. Overall the results (comprising operational data and revenue) is in line with our estimates and leaves the company on track to meet its guidance of $320-340m revenue; which will be the 4th yr in a row it has set a record. YoY growth in revenue, ARPOR and average fleet size was 12%, 9% and 11% respectively.

The results also show the diversification in this growth – non-drilling revenue is now 36%. This comes from the company’s MSALABS business that now employs 10 Chrysos PhotonAssay™ across Africa & Canada growing to 21 by FY25. The third leg is the
company’s mining services business where the company recently won a very competitive tender for Fortescue’s Ivindo iron ore project in Gabon.

The company continues to deliver diversified revenue growth both technically and geographically thereby reducing cashflow at risk and ultimately its cost of capital. We maintain our PT of 160p."

[rivaldo] 19/7/2023 07:36

The Q2/H1 update is out and shows CAPD trading nicely in line with expectations, and therefore on a P/E of just 6.0.

Notably, non-drilling revenue is now 36% of total revenues. MSALabs and Chrysos continue to thrive, with Chrysos revenues expected to reach over $80m in a couple of years.

One or two hiccups in terms of Sudan drilling, which is expected to resume soon anyway, and resulting lower fleet utilisation, but with such a spread of rigs including some riskier geographies that's more than reflected in the rating.

With more and more long-term drilling and mining services now secured, on top of the expanding Labs business, CAPD are still in extremely good shape imo.